Wednesday, August 15, 2007

New Yorker on College Loans

The New Yorker's refined economics columnist mentions the same points I've made, oh, once or twice, about the screwed-up economics of college loans.

Suroweicki:if a student defaults, the government will pay off almost the entire loan. On top of that, the government hands out billions of dollars in subsidies to lenders every year, all but insuring them a steady profit. In effect, lenders get a guaranteed return with very little risk. This convoluted process is good at making student-loan companies rich—Sallie Mae, the biggest issuer of student loans, earned $1.3 billion last year, with a return on equity that dwarfs most other companies’. But it’s not very good at getting government money to students cheaply and efficiently.

Me: The federal student aid system fails students, but it does a great job of delivering profits to private lenders, which issued $65 billion in loans last year.